SOI 2012 - Falling Markets: On the Decline

Education And Financial Markets Drop From Their Perch

Falling Markets: On the DeclineThe education and financial/insurance sectors both took hits on their shares of the ad specialty market in 2011, due to tightening budgets and growing scrutiny of their marketing expenses. Schools and universities dropped to 11% of the market, slipping to the number-two spot after holding the largest share of any sector in 2010, at 12.4%.

"Colleges and schools are under quite a bit of heat economically; a lot of pressure is being put on them to keep their costs down and prove their return on investment," says Brian Niles, CEO and co-founder of higher education technology consultancy TargetX.

This has led many to trim back as much as possible on many areas of spending, promotional marketing included. Schools' focus on cost above all else has led to a drop in business for David Anderson, co-owner of Imprint Revolution (asi/541421). While he has produced T-shirts and promotional products for a local public university for more than a decade, two years ago they put together a program where every single marketing item had to be put through a rigorous bidding process, which would be reviewed annually.

"They wanted us to quote on everything on price alone, not basing it on anything having to do with quality or history with the vendors," says Anderson. "They say they're trying to save the school money by consolidating and finding the best bid, but it's the company that was willing to lowball, probably at cost, that gets the business."

Another area in which higher education is seeking to improve its bottom line at the expense of distributors is through increasing licensing charges. A private university that Anderson had worked with for years recently changed its policy from charging $100 per year, plus a percentage, to use the school's logo to charging $100 per category – men's T-shirt, women's T-shirt, men's sweatshirt, and so on.

Robert Sevier, senior vice president of strategy for Stamats, a higher education marketing firm, points to the shift to online applications and interactions as both a reason for the decline in promotional product sales and an opportunity. "So many colleges are relying just on electronic stuff and there's not a tangible that's delivered," says Sevier.

He cites an annual study that Stamats conducts that saw an uptick in students who are accepted to colleges but don't remember applying, either because someone else filled out the application for them or the flood of online forms made it difficult for a particular one to stand out. "That's where promotional items can create the sense that this is an event," says Sevier. "It can help catch people's attention and help them remember you."

A separate challenge with high schools and middle schools is something distributors have been dealing with for many years: It's hard to hold onto them. The point of contact is often a parent or student leader who may give a team, club or entire school's business to a distributor for a few years, but once they (or their child) graduate, the business goes elsewhere.

"Booster group business is always up and down – if you're in charge of a booster club, then you have someone else take over because you know them," says Mary McCarty, owner of Select Sportswear (asi/565078). "If it's a different person in charge, they go somewhere else."

Even more so than schools, banks and insurance companies have had to significantly cut back on their spending, not only to help the ailing bottom line, but because of public pressure to curtail any expenditures seen as more than absolutely necessary for running the business. In 2011, the financial/insurance sector's share of distributor revenues dropped to 8.2%, from 9.6% in 2010, and 12.3% in 2009.

"The new normal is tight expense control," says Joe Sullivan, CEO of Market Insights, a consulting firm specializing in community banks and credit unions. "Banks have to make sure that what they're doing makes sense and that they are targeting the right customers."

He stresses that the role of marketing is increasingly focused on improving credibility, both with consumers and with the top brass at corporate clients. Decisions about promotional products are usually reviewed in terms of what precise return on investment they can provide.

Because of that, the focus for financial companies has been on practical products, according to Lisa Buehler, senior vice president of sales and marketing at Allegra Print & Imaging of Arkansas Inc. (asi/372419). "They want something that's useful for clients other than standard giveaways," she says, emphasizing that technology products or small items like credit card sleeves seem to be consistent sellers for finance and banking clients. "People who have been spending money are tending to prefer higher-end, nicer items this year."

Mark Nystuen, equity principal at finance marketing firm Kineo, agrees that finance and insurance companies are moving away from anything that could be perceived as tchotchkes and are emphasizing practicality. "Banks are looking to promote themselves while adding value to their prospects, and some of the more traditional promotional products have suffered from that," he says. "How many pens do you really need?"

Many distributors view the consecutive years of shrinking market share as an aftershock of the 2008 credit crisis. One of Pride Products' (asi/299307) biggest clients was Lehman Brothers, whose bankruptcy almost four years ago hit the company hard. "It was painful to have your top client go away," says Andy Nadel, president of the company, "but it teaches you about the 80/20 rule in business, and we survived it."

Since the recession, the company has not seen much of a return of its finance and banking clients, outside of some small orders with Citibank, UBS and some other companies. But Nadel says that he remains "cautiously optimistic" about the potential of the sector in the coming months and years.

"When the crisis hit, everything stopped, especially the financial industry because it was looked upon badly if it was giving away things," says Robert Schwartz, president of Spectrum Promotional Products (asi/332130). "Now those companies are doing what they need to do to make business work – they're being cautious."

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